Add Backed bIB01 (Tokenized Short-Term US T-Bill ETF) as Collateral

New Markets
1

Hello Compound Community,

Backed Finance AG (backed.fi) is a Swiss company specializing in tokenizing RWAs. We propose the addition of Backed bIB01 as a collateral asset on Compound’s Ethereum market. Backed bIB01 tracks the IB01 short-term US Treasury bond ETF. Our proposal introduces a secure and compliant RWA to the Compound ecosystem, offering real-world yield, diversification, and stability.

bIB01 is popular as an underlying for DeFi protocols. It is used by Angle Protocol as collateral to mint agEUR and as lending collateral on their market ($~1m). It is used for the Ribbon Finance rEarn vault (over $3m) and the Bloom TBY product (over $2m) to provide an underlying stable yield.

For Compound, bIB01 offers exposure to a low-risk US Treasury bond ETF with stable returns. bIB01 is cross-chain and can be used as collateral on Ethereum, Polygon, Base and Arbirtrum v3 Markets. Initially, we suggest starting with just mainnet.

Most importantly, it can boost the unsubsidized yield offered by Compound today from 2.95% to ~4.5% without much effort which will increase demand and Compound’s revenues.

Background

Backed Finance AG is a Swiss-based company that has developed a compliant solution for issuing freely transferable tokenized versions of tradable securities, such as stocks, bonds, and ETFs. Assets are issued by our subsidiary, Backed Assets GmbH. This is a dedicated special-purpose vehicle which benefits from Switzerland’s innovation-friendly regulations, such as the Digital Ledger Technology (DLT) Act, which allows the existence and transfer of digital asset securities on permissionless venues.

Key points about Backed Finance and Backed bIB01:

  • Backed offers tokenized structured products under Swiss law. bTokens are tracker certificates pegged to the underlying asset’s value and fully backed by it.
  • All underlying assets are custodied by regulated Swiss custodian banks.
  • Backed and its products are trusted by leading industry players such as Aragon, Gnosis, Ribbon, and Angle.
  • Full legal documentation on bIB01 is available here.

Backed bIB01 Token (Token contract on Ethereum)

Backed bIB01 is an ERC-20 token tracking the value of the iShares $ Treasury Bond 0-1yr UCITS ETF; this accumulating ETF consists of a portfolio of US Treasury Bonds. Each Backed bIB01 token is backed 1:1 by the underlying. bIB01 currently has a market cap of $37.7m, representing a significant share of the composable RWA market.

Key features of Backed bIB01:

  • Swiss regulatory framework and an approved EU prospectus.
  • Independent Proof of Reserves and Price Feeds by Chainlink.
  • Stability in value and yield due to the nature of the underlying asset.
  • Freely transferable ERC-20 token.
  • The underlying assets are book-entry securities - separate from the custodian’s balance sheet and bankruptcy remote.

Parameters

We propose the following parameters for Backed bIB01 on Compound:

  • Maximum Loan-to-Value (LTV): 96%
  • Liquidation Threshold: 98%
  • Liquidation Penalty: 2%

Liquidity

Backed has access to very deep off-chain liquidity. The US-treasuries market is super-liquid, transactions of hundreds of millions of dollars can be executed without much market movement. Several of Backed clients are acting as off-chain liquidators for other protocols.

On-chain liquidity for bTokens is in development. There is some liquidity on open DEXs (e.g. balancer) that Backed does not support/maintain. Backed is developing a solution to facilitate on-chain liquidity via permissioned pools. As the underlying assets are securities, bTokens will first be wrapped in a permissioned layer to ensure they are only transferred to eligible investors that have passed KYC checks. bTokens can be wrapped and unwrapped at any time using a smart contract, only requiring the gas fee.

Conclusion

Listing Backed bIB01 on Compound would benefit both the Compound community and bIB01 holders. Including bIB01 as collateral would increase the Compound rates and revenues while the wider market demand for short-term US Treasury bonds surges.

We are committed to working with the Compound community to ensure the successful integration of Backed bIB01 and provide any necessary support or resources. We greatly appreciate your consideration of our proposal, and welcome any questions or suggestions as to how to make this work best for Compound users.

Best regards,

The Backed team

https://twitter.com/BackedFi

https://www.linkedin.com/company/backed-finance/

Not for the distribution to any U.S. Person or any person or address in the United States.

Backed DOES NOT sell its tokens to U.S. Persons or for the account or benefit of U.S. Persons, and tokens are not marketed, offered, or solicited in the U.S. or in any other prohibited jurisdiction.

For a full list of prohibited and restricted countries and review of legal documentation, please visit https://www.backedassets.fi/legal-documentation

The Backed Assets bIB01 (ticker symbol: bIB01) is a tracker certificate issued as an ERC-20 token, which tracks the price of the iShares $ Treasury Bond 0-1yr UCITS ETF. Backed Finance AG and its subsidiary Backed Assets GmbH are not affiliates of or licensed by BlackRock Inc, BlackRock Fund Advisors and any of its affiliates (“BlackRock”). BlackRock is not responsible in any way to bIB01 products.

5 Likes
2

I salute your proposal. I think Backed is one of the strongest RWA-Tokenization players.

I particularly like your partnership with Angle Protocol so far, and I think you would be able to add value to Compound ecosystem.

3 Likes
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Hello sir,

I believe on-chain liquidity is what’s valuable in this case.

blB01’s market cap is at least 2 orders of magnitude smaller than the next closest collateral asset on Ethereum mainnet excluding COMP. For this reason, I’d suggest to focus on a layer 2 deployment & further your initiative to shore up on-chain liquidity for the asset. However, I am slightly confused how liquidations may work if holders must be on some whitelist. Maybe you can clarify here? Surely liquidations are covered somehow. If not, that would be very dangerous (trusting custodian).

Now after reading back, I see you mentioned off-chain liquidators. I don’t think this would fly.

Live reserve data may provide additional confidence. Overall, the on-chain treasury bill market is even more nascent than DeFi itself. In time, I’m quite sure there will be a solution like this. Now my final point:

Compound’s core interface, maintained by Labs, is governed by California law. With the way that Backed is setup, conflicts in this area may arise which are not simple to resolve. How has this been considered?

Thank you for the clarity & wish you guys the best.

Sincerely,
Cameron

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Thank you for your positive words. We appreciate your support.

1 Like
6

Thank you for your reply Cameron. We appreciate your response, and are enthusiastic to learn what is required to be listed on Compound, and we understand there is more development to go.

Regarding liquidity:

Due to the nature of these securities, the risk of liquidation is much lower than crypto native assets. We are working to bootstrap liquidity pools which will enable on-chain liquidations.

We would ask what the Compound community would consider adequate liquidity for these initial pools?

Additionally, given the size of market depth off-chain, we believe we might not require quite as large an on-chain pool, but efficient arbitrage functions between on-chain pools and Backed’s primary market.

Regarding market cap:

Indeed, the market cap is smaller at the moment and the asset class is much younger. However, it is one of the fastest growing verticals in DeFi. https://dune.com/steakhouse/tokenized-securities

bIB01 is uncorrelated to other asset classes that can be used as collateral. bIB01 is less volatile, and is unaffected by the wider crypto market.

The US treasury market is around $15 trillion. We are only at the precipice of this market moving on-chain.

Regarding US persons:

California choice of law applies to Compound interface services and not to the collateral assets. As noted, Backed tokens are issued under EU prospectus regulation and are restricted from being offered and sold to US persons.

Thanks again for engaging with this proposal, we look forward to making this work. Tokenized RWAs are in their early days, however we see excellent possibilities for these assets in the DeFi space. We look forward to working with the Compound community.

1 Like
7

Hey all,

I’m a big fan of RWAs and glad to see this proposal on the forum. After reading through the proposal I have a couple initial comments:

Liquidation Threshold and Penalty values may be too aggressive. If the LT and LP params sum to 100% or more, this means that any liquidation will automatically result in a loss to the protocol; by the time liquidation is triggered at 98% LT, the protocol will auction collateral for less than the value of debt to be repaid due to the 2% penalty. Adding in additional buffers for oracle sensitivity/latency and possible delays in liquidation, I think a lower LTV/LT of 95%/96% would be more suitable, and potentially even a bit lower than that to optimize for safety.

Support on front ends is unclear. Because bIB01 is not available to US persons, it seems unlikely that the Compound Labs front end will offer support for this market. Certain other services may offer front ends that support this token but they may not have geoblocking or other similar mechanisms to exclude US persons. So this brings up the potential that bIB01 may not have adequate front end support for Compound protocol users, or may create risk due to serving US persons inadvertently.

Current onchain liquidity may be inadequate for listing. While the most important liquidity source for RWAs like bIB01 is the primary market (minting and redemption), secondary market liquidity on DEX is also very important, as it allows for a broader set of participants in liquidations and improves protocol resilience. Additionally, off-chain liquidation processes prevent atomic settlement which requires liquidators to hold inventory, increasing capital costs and further reducing participation. Ideally, bIB01 should have at least enough liquidity to allow for efficient arbitrage between DEX and mint/redeem transactions, while accounting for market impact, Ethereum gas costs, and a reasonable profit margin for arbitrageurs. I’m not sure exactly how much liquidity would be needed, but assuming something in the range of 6-7 figure TVL in concentrated liquidity AMM.

Overall, I think this could be a good fit for the USDC market(s)! Increasing the base level of demand will help grow USDC supplied and reduce the need for COMP incentives. But I think we should try to address potential pitfalls to set Compound up for success with the integration.

3 Likes
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Thank you so much for your valuable input Monet-Supply. We are pleased to hear that you think this would be a good fit for the USDC markets.

Point 1:

We appreciate your feedback on these parameters and agree they are too aggressive for the platform. It makes sense to prioritize safety now and iterate on the values in the future.

For initial integration and to demonstrate the suitability of the asset, an LTV/LT of 94%/95% would work well to begin with. We welcome further input from the Compound community as usage of the pair grows.

Point 2:

There is a difference between the regulatory restrictions which Backed has taken upon itself and the commercial aspects that Compound abides to.

bIB01 cannot be offered to US persons at any point during the process. A non-US person can use their bIB01 via the Compound interface to collateralize a loan. Compound at no point gains ownership of the tokens or offers the tokens for sale. Compound merely facilitates the usage of the smart contracts via their interface, and as such can decide which laws govern its interface.

This seems to be mostly a commercial issue and not a regulatory one.

Point 3:

This is excellent input. We are happy to say we have a solution for on-chain liquidity. We have released our wrapped token which adds a whitelist layer to our regular tokens. By using a wrapped token with a whitelist, compliant trading on AMMs is now possible. The token can be wrapped and unwrapped at any time by those who have onboarded with Backed. We will create a Curve pool including the wrapped token itself with a couple of highly liquid stablecoins.

In terms of available liquidity in the pool, we are targeting a 7-figure depth and we expect this to be enough to properly satisfy the liquidator’s needs.

We are finalizing the conversations with our stablecoin partners to offer an adequate incentive on the pool, and we expect the pool to be bootstrapped in the next few weeks.

We hope these answers address these points and move towards success for Compound.

1 Like